#8a

For this question you should assume that there are four economies - the U.S, the U.K, Canada and Europe. The U.S is the home economy. You are given the following information. The U.S interest rate is 0.08. The UK interest rate is 0.05. The Canadian interest rate is 0.15. The spot exchange rate for the dollar with the UK is 1.0. The dollar exchange rate with Canada is 0.50. Assume that UIP holds. What is the spot exchange rate between the U.K and Canada where the U.K is the home country?

• 1.0
• 3.0
• 0.25
• 0.80

#8b

What is the expected return for a U.S investor investing in Europe?

• 0.00
• 0.20
• 0.08
• 0.05

#8c

What is the expected return for a U.S investor investing in Canada.

• 0.00
• 0.20
• 0.08
• 0.05

#8d

Calculate the return for US investors of investing in the following countries. The US is the home country and you do not need to assume that uncovered interest parity holds. In each case the US interest rate is 0.10. If the interest rate in England is 0.10, the exchange rate is 2.0 and the forward rate is 2.1 what is the return for US investors in England.

• 0.15
• -0.10
• 0.10
• 0.075